This is largely an update based on Q2 earnings results.
Airbnb
ANBN signaled slower revenue growth in the second half of 2024. As a result, I have taken down my growth projections with about 1%. I have also reduced my EBIT margin development due to a stagnant development in ABNB’s take rate. This adjustment gives me a fair value estimate of $120 per share. ABNB’s sell-off after earnings are, therefore, justified in my eyes.
So, where does ABNB go from here? The main problem with evaluating platform companies is putting a figure on the optionality value. What do I mean by optionality value? The term encapsulates that platform companies at any point in time can pivot from their core, open up new markets, and capture new revenue streams.
Much of ABNB’s earnings call dealt with potential optionalities. Brian Chesky, the CEO and founder of the company, listed a series of priorities. His top priority was to enhance the hosting platform so that the process of matching property managers with homeowners gets simplified. How GuestReady works with hosts in Dubai is a typical example of this. Many homeowners don’t have the time or the resources to handle the hosting process alone but are more prone to rent out their property if third-party companies such as GuestReady can manage everything. So, here there are opportunities to increase supply to the platform.
His second priority was to make more hay out of the experiences tab in the interface. With experiences, we are talking about tickets to cultural arrangements, various sights, and everything a tourist wants to do on holidays. This is exactly what Booking.com does today. Bear in mind, however, that ABNB serves a different market segment, so there isn’t a direct overlap between the two.
His third priority was to build out the event playbook. ABNB offered 150,000 homes during the Paris Olympics. Chesky saw a huge potential in widening the focus to smaller events and conferences. This could bring both short-term and long–term supply into the marketplace.
So, there is growth potential in the platform. My fair value estimate is based on how the business develops as it looks today. It is impossible to price in the value of every opportunity that will arise in the next 10 years. When all this is said, it is important to point out that there are no fundamental problems with ABNB’s business model. ABNB is one of the most profitable tech companies in the world. In the last quarter, ABNB continued to build out its global footprint and has more than 8 million hosts on its platform. The free cash flow generation is very impressive.
Summing up all these considerations, Airbnb is slightly undervalued below $120. The share price development will hinge on whether ABNB can expand beyond its core.
Uber
Uber has developed a tad better than I expected at the end of last year. As a result, I take my fair value estimate up from $83 to $85 per share.
The CEO's messaging during the earnings call dealt with robotaxis. Uber is concerned with getting out front on this issue after the Tesla robotaxi announcement. The fact of the matter is that Google’s Waymo does its rides on the Uber platform. Furthermore, Uber has ownership in Aurora. Uber’s CEO was confident that most of the robotics would converge around the Uber platform because Uber is the only network with global reach. Thus, the emergence of robotaxis will strengthen Uber’s take rate and bottom line.
In the last quarter, Uber showed strong growth in both mobility and deliveries. Uber is also strengthening its flywheel by offering additional services to its customers. In many markets, riders can now use the Uber app to buy tickets on public transport, such as buses, trains, trams, and so on. In dollars, these offerings aren’t massively profitable in terms of generating extra fees. However, the additional services bring more eyeballs to the platform, making it possible to sell more advertisements. Uber is now generating more than $1B in sales through advertisement. This item will continue to grow strongly, refer back to what optionality value can mean for a platform as described above.
In total, the future looks very bright. Buying Uber below $80 can be construed as a steal.
I will most certainly add to my Uber position this fall. However, this is likely to be my last purchase. My Uber position isn’t far from being 5% of my total portfolio. I usually stop adding after this level gets surpassed for internal risk management purposes.
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